ASX deadline on executive shares

The Australian Securities Exchange has warned that it will take a hard line against more than 300 listed companies that have failed to comply with a new listing rule requiring them to implement share-trading ­policies for their directors and senior executives.

Under the rule, which took effect on January 1, an ASX-listed company is required to implement and disclose a share-trading policy, including details of market-sensitive periods when transactions will be restricted, in an effort to crack down on insider trading.

The rule means that thousands of senior employees will be restricted from trading shares in their companies and face bonuses being cut or instant dismissal for breaches.

More than 1700 listed companies had lodged their share-trading ­policies by yesterday, but about 320 failed to comply.

The chief compliance officer of the securities exchange, Kevin Lewis, warned that the ASX would not be afraid to issue sanctions against those companies that failed to fall into line.

“With regards to us monitoring the lodgment of the trading policies and pursuing those who have not lodged, we will continue to communicate with the companies to ensure their co-operation," Mr Lewis told The Aust­ralian Financial Review ­yesterday. “Obviously, the ASX may suspend an entity at any time if it does not comply with the listing rule."

The ASX rule was introduced after the latest research revealed that 41 per cent of directors traded during blackout periods – the time between the end of the reporting period and the announcement of company results.

Trading by directors during blackout periods is not against the law and directors stress that it is not the same as insider ­trading.

Related Quotes

Company Profile

But the ASX has long maintained that the practice raises suspicion and should be avoided. Despite the ASX campaigning on the issue for years, many companies continued to disregard the warnings. The ASX last year said it would introduce a new rule to force companies to adopt a policy.

Many big companies have already had policies in place but have not disclosed them to the market before. Others have updated their policies, while many smaller listed companies are adopting policies for the first time.

Lawyers said many companies had chosen to go much further than the ASX requirements by applying restrictions down to mid-level employees, rather than just directors and senior executives. The company policies are in addition to insider trading laws that apply to anyone with inside information.

“The new rule means that boards can now only give consent to trade during blackout periods in exceptional circumstances," Freehills partner Priscilla Bryans said.

“There is a risk that old policies may result in a year-round blackout period unless appropriate carve-outs have been made."

ANZ
Banking Group has disclosed a policy requiring all ­senior executives, and all staff in financial departments, to obtain approval before trading ANZ shares.

They are banned from trading in blackout periods, defined as the 14 days before a trading update. Breaches can result in a reassessment of bonuses, a trading ban or termination of employment.

“As a banking and financial services organisation, we have a heightened awareness of the obligations and need to observe the relevant rules and regulations, and as a result have sought to adopt the highest standards of corporate governance in this area," ANZ spokesperson Erin Kan said.

Other major banks have adopted similarly strict policies .
National Australia Bank
requires all its designated employees to seek approval before trading.

Westpac Bank
has a blackout period that runs from a month before it rules off its full and half-year accounts, through to one day after it reports them to the market – meaning in effect that designated executives cannot trade their Westpac shares for almost four months a year.

Commonwealth Bank of Aust­ralia
allows its directors, senior executives as well as employees with access to financial information to trade only in the 30 days after its full-year results and the 14 days after its annual general meeting.

Woolworths
bans its staff from making short-term gains from its shares, prohibiting its employees from buying and selling Woolworths shares within a six-month period. All staff are banned from trading during the two weeks before the full and half-year financial results, while the blackout period is more restrictive for senior executives.

“We do have restrictions on short-term dealings," said Woolworths spokeswoman Clare Buchanan. “The purpose is [that] we encourage staff to be long-term holders in our security. We don’t think it helps ­market or shareholder confidence if people are seeking to make short-term gains."

While all policies allow for trading exceptions in times of financial hardship, most companies have different rules on who is authorised to approve that trading. Freehills’ Ms Bryans said companies also needed to rethink how broadly the policies applied.

“Because a company’s ability to give consent to trade during a blackout period is now restricted to exceptional circumstances, boards may want to limit the application of the policies to more senior executives," she said.

Smaller companies such as
Quest Investments
and
Murchison Holdings
filed policies that restrict all their employees from trading unless they obtain approval from two authorised persons.

Miners
BHP Billiton
and
Rio Tinto
apply their policies to family members, trusts, partners and others connected to their directors and senior executives.

“Those companies which have stepped up to the plate with clear and rigid policies we would applaud, and hopefully others will follow suit," Tim Sheehy, chief executive of Chartered Secretaries Australia, said.

The ASX rule comes as the Australian Securities and Investments Commission steps up its pursuit of insider trading with new powers to raid premises, seize documents and tap phones. The new laws also have dramatically increased the penalties for sharemarket misconduct, including a fivefold rise in fines for companies from $1 million to $4.95 million and doubling the maximum prison term for individuals to 10 years.

A recent survey of 1500 businesses, investors and consumers found that only 11 per cent thought the sharemarket was free from insider trading or other abuses.